Development handouts

The government subsidizes sprawl, even though the return-on-investment is horrible.

Your house would’ve cost a lot more if the government hadn’t intervened. There are so many subsidies channeled through local, regional, and federal agencies that it’s a mystery anyone describes our economic system as a “free” market. Subsidies distort prices, which is why sprawl is perceived to be so cheap compared to compact development.

For example, tax-related subsidies such as tax incentives and mortgage interest deductions skew the cost calculations of developers and homeowners. Infrastructure-related subsidies prop up the value of specific locations and create an artificial allure for developers. 

The Woodlands is a master-planned community near Houston, Texas. It’s known for its extensive network of parks, green spaces, and well-designed neighborhoods. It’s a massive project (over 100,000 residents) that has won a bunch of awards over the years. The development was heavily subsidized through a public-private partnership with The Woodlands Development Corporation (TDC). 

Howard Hughes Corporation was the majority owner of TDC. Brown & Root was a construction company Halliburton, and owned a stake. These corporations aren’t exactly pressed for cash. And yet, some of their government gifts to build a new town north of Houston included:

• The state legislature granted a 10-year tax abatement on property taxes, meaning the developer didn’t have to pay property taxes on the land it developed for 10 years.

• The Federal Highway Administration gave $10 million for a new highway from The Woodlands to Houston. The feds also gave $5 million for a water treatment plant.

• The state donated 2,000 acres of public land for roads, utilities, and schools.

Woodlands might be an extreme example, because it went from being a bedroom community to a self-contained town. (Although “self-contained” is debatable since TxDOT keeps expanding roads they claim are necessary for all the people driving in and out of the area.)

I’m not here to argue the validity or foolishness of government subsidies in land development and housing. But because it’s a huge (and often invisible) force of urbanism, I think it’s worth listing some of the popular ways this happens. The more you understand how public agencies subsidize private projects, the more you’ll understand the magnitude of sprawl’s drain on the economy.

Road Construction

People who live over here end up paying for commuters from way over there. Construction and maintenance is expensive, and “free” roads are a major incentive for large developers. 

Water & Sewer Extensions

Water and sewer line expansion is an obvious requirement. What’s less obvious is that large developers are often given these connections rather than paying for them and passing on the cost to homebuyers. 

Power Extensions

Agencies offer to provide electricity connections to new neighborhoods in far flung greenfield developments.

Impact Fee Reductions

Government waivers or reductions in impact fees involve lowering or eliminating fees charged to developers for the costs associated with increased demands on public infrastructure.

Land Banking

Public agencies buy and hold land for future development, influencing land availability, land prices, and eventually housing prices.

Eminent Domain

Agencies regularly take private property by force. There’s no telling how many property owners agree to sell because of the threat of eminent domain.

Zoning

Zoning regulations dictate land use and development parameters, restricting what can be built and where within a neighborhood.

Land Use Vouchers

Developers get discounted access to parcels of land, reducing their land acquisition costs. It’s another reason greenfield projects can be so attractive to large scale builders.

Fee Waivers

Governments exempt or reduce permit fees or impact fees for developers, lowering the overall development costs.

Public-Private Partnerships

Collaborative efforts between government entities and private developers combine resources. These will often pop up for mega projects.

Tax Incentives

Tax breaks or reductions are granted to spur on development and sales. You’ll see this in areas that have little demand for growth.

Mortgage Interest Deduction

Deducting interest paid on mortgage loans reduces the overall tax liability for homeowners. This plays a major part in Americans buying more house than they need. 

Now that we’re past the just-the-facts, I’ll get into the judgy territory. 

A host of subsidies incentivize car-oriented infrastructure and development. Sprawl is a natural outcome of the development perks I listed above, because subsidies artificially alter prices. 

When I say sprawl, I don’t simply mean single-family homes with yards. Stretches of big box stories and parking lots are sprawl. I’m lumping together the stuff that’s spread out across the landscape at car-scale rather than human-scale.

Government agencies routinely partially or fully fund junk infrastructure that:

• is a major cause of traffic congestion. Residents have to travel longer distances to get to work, school, and other destinations. 

• is a major cause of traffic violence. An average of 2,300 people are injured in traffic crashes every day in the US. That costs the US economy over $800 billion each year.

• contributes to social isolation. Residents of car-dependent places are more likely to experience loneliness, depression, anxiety, and other mental health problems.

• contributes to ailments like heart disease, cancers, obesity, diabetes, chronic pains, and other physical health problems. 

The allure of affordable housing in the suburbs drives the sprawl trend, particularly among middle- to upper-middle-class. As housing prices soar in urban centers, people look for more affordable options. This surge in demand for suburban housing further contributes to the expansion of sprawl, as builders and developers respond to artificial demand.

Local zoning codes are excellent at blocking urban revitalization and compact development. Regulations tend to conflict with the advertised vision statements of local governments. They publicly promote walkability, but their own rules limit or outlaw mixed-use and walkable neighborhoods. And on top of it all, local agencies participate in the subsidy tactics listed above.

Even in the face of all these challenges, healthy infrastructure is possible. I say this all the time, but it’s important: housing abundance and walkable places can be made possible at the local level. 

Start with the planning and economic development departments. They’re the ones writing and enforcing policy and tossing around subsidies to private developers.